Rocket Internet’s rumored IPO – would it be madness or genius?

The Internet is abuzz with rumors, stemming from Brazilian-based blogger Thomas Baldwin, that startup accelerator Rocket Internet is preparing for an IPO.

Baldwin, writing in his blog Tropical Considerations, claims sources at management level have confirmed the Samwer brothers’ cloning machine is working towards a public listing. Baldwin goes on to name two auditing partners for the Latin America and Brazil parts of the deal.

We checked a few of our own sources for views on how likely a public listing is and what it might mean for the ecosystem at large.

Rocket IPO – what exactly does that mean?

Rocket Internet, founded by Germany’s Samwer brothers in 2007, spans over 50 portfolio companies in over 40 countries. The group includes at least two mid-tier holding companies: Bigfoot I (Dafiti, Lamoda, Namshi); and Bigfoot II (The Iconic, Zalora, Zando).

The news is already out that Rocket Internet may be considering an IPO for Zalando, its flagship online fashion retailer. So is Baldwin’s new info referring to single Rocket Internet companies or something on a much larger scale?

While his blog post hints at a whole company IPO, Baldwin told VentureBeat content partner VentureVillage that his sources couldn’t confirm whether it would be Rocket Internet itself or just some of its portfolio companies. His personal opinion is that it is more likely to be an assortment of established companies such as Zalando and Dafiti.

“It would limit Rocket’s flexibility if all companies were listed; it could subject their procedures of starting new companies to more scrutiny than they’d like. But when these Rocket companies reach profitability, they are really attractive, profitable businesses. And going public would give the Samwers more credibility.”

Baldwin, an MBA candidate at the Wharton University of Pennsylvania, claims JP Morgan will likely head up the rumoured deal as Rocket’s main advisor. JP Morgan already has a close relationship to Rocket through investments in portfolio companies including Zalando, Home24, and Dafiti and is the only Wall Street bank to have invested in Rocket’s ventures, making it the obvious choice.

Baldwin also claims Rocket is working with top-tier auditing company PricewaterhouseCoopers to consolidate the accounts for a public offering.

Asked for comment, Rocket Internet’s global head of public relations Andreas Winiarski said only that “we do not comment on rumors.” Another, unnamed Rocket source in Berlin told VentureVillage that it was “sheer nonsense” that Rocket would go public as a whole. He claimed: “If they were to go public, they would IPO with separate companies.”

The pros and the cons of a Rocket IPO

Rocket Internet’s endless need for capital means an IPO for at least some of its companies could make sense. For investors such as Kinnevik, one of the key financiers of the Samwers’ ventures, an IPO would be useful, giving the firm a clear valuation for those particular Rocket-related assets.

If it happens, a Rocket Internet IPO would likely also have an impact on the wider Internet scene (proven by the amount of interest in this week’s rumors).

The first major Berlin IPO

Pawel Chudzinski, from Berlin-based Angel VC Point Nine Capital, told VentureVillage that a Rocket IPO would be major news for the Berlin startup scene in particular, as it would be the first large tech IPO from the city – especially if all startups in the portfolio were involved in the deal.

“A IPO would be a major validation for Rocket’s reputation,” he said. “But I am not sure how Rocket could function under the regime public companies have to subscribe to – including quarterly updates, a focus on short term profits and so on. Their valuation as a public company would probably be a rollercoaster.”

Julian Riedlbauer, from GP Bullhound, a merger and acquisition firm based in Berlin, said he would welcome the news: “I don’t know if it’s true, or if it’s Rocket or their individual portfolio companies, but the rumors are in the market,” he said.

“If Rocket or one or more of their portfolio companies go public, it’s great news for the entire internet market in Germany. It would open up the IPO market again as a form of exit. From this perspective, it doesn’t matter if it’s one or more of their companies or the entire group.”

Should we care?

Silicon Valley tech journo Sarah Lacy (PandoDaily, ex-TechCrunch) downplayed the impact a listing would have on the tech scene and on Rocket’s credibility. She wrote that “real entrepreneurs will never respect the Samwer Brothers” due to their track record of cloning other companies’ business ideas.

In rebuttal, Baldwin commented that, while he does not support the copycat practices of the Samwers, “the notion that the world revolves around Silicon Valley is inaccurate in my opinion.”

Companies in markets and sectors where Rocket is active, whether they’re based in the US or not, better pay attention: ”For emerging markets, it’s going to be difficult to compete with a company that has seemingly bottomless pockets – so if you want to do fashion or eCommerce in Indonesia, for example, you’re going to be crushed.”